M&A and Forex

Question 1

what proactive strategies can an acquiree use to prevent being acquired?

Answer 1

• improve performance (to cancel out any synergies)
• share split, new div policy, issuing more shares after being acquired to dilute control
• amending MOI
• selling valuable assets (to make it less worthwhile for someone to acquire)

Question 2

what reactive strategies can an acquiree use to prevent being acquired?

Answer 2

• BoD can announce its disagreement with the deal due to unfairness
• alternative friendly merger
• counter attack
• disclose new information

Question 3

what is an indicator of lost value?

Answer 3

trading at a discount to the NAV

Question 4

disadvantages of unbundling?

Answer 4

• loss of financing abilities, key assets and staff
• very expensive / paperwork to change asset ownership

Question 5

who can initiate business rescue?

Answer 5

• creditors / stakeholders
• BoD

Question 6

what happens under business rescue?

Answer 6

• restructuring of business affairs
• moratorium on rights of creditors
• supervision by a business rescue practitioner

Question 7

what to steps to consider in an M&A question?

Answer 7

1) synergies / reasons for acq
2) financing and structure
3) due diligence, risks, legalities
4) mgmt attitude / integration / after-effects

Question 8

what steps to consider in a dividend/SBB question?

Answer 8

1) policy, amount of div
2) effect on company, ratios, RE, risks, whether appropriate given context & S/L
3) effect on SH, prefs, tax
4) Co. Act reqs (distr)
5) effect on market, SP, signalling
6) alternatives to divs

Question 9

what is the bank’s buy / sell rate?

Answer 9

rate at which they would buy or sell you foreign currency

Question 10

what is the bank’s margin or spread?

Answer 10

the difference between their buy and sell rates

Question 11

what is a mid-rate?

Answer 11

the average of buy and sell rates

Question 12

what influences the foreign exchange market?

Answer 12

• different interest rates of countries
• inflation

Question 13

how do we determine the difference between spot and forward rates?

Answer 13

the difference between the interest rates of the two countries

Question 14

what is arbitrage?

Answer 14

buying and selling different currencies, commodities, securities in different market to take advantage of price differences

Question 15

what are the 3 types of foreign exchange exposures?

Answer 15

• translation exposure
• transaction exposure
• economic exposure

Question 16

what is translation exposure?

Answer 16

effect of potential FC gains and losses on the accounting results

Question 17

what is transaction exposure?

Answer 17

effect of potential FC gains and losses when entering into a transaction for which the terms are in the FC

Question 17

what is economic exposure?

Answer 17

long term real effects of changes in the exchange rate

Question 18

how can a company protect itself from changes in FCs?

Answer 18

applying hedging policies such as instruments or natural hedging